At a time when international competition is heating up to export liquefied natural gas into Asia, Alaska is scrambling to become a major player in foreign export markets, while also giving state consumers access to local fuel.
America's northernmost state wants to commercialize the 34 trillion cubic feet of natural gas available on its North Slope, roughly a tenth of all U.S. natural gas reserves.
But although Alaska has plenty of gas, transporting it from the frozen north to the world's markets has been the subject of one of the most contentious and long-running battles in the state's history.
Recently, Alaska officials expanded the authority of a state corporation in hopes of giving it enough flexibility and muscle to get a natural gas pipeline built.
During the 2013 legislative session, state lawmakers converted the Alaska Gasline Development Corp. (AGDC) into an independent state corporation.
They gave the new body broad powers to take part in two projects: a large-volume LNG export project proposed by the energy industry and a small, in-state gas pipeline.
"We are currently on two parallel but merging paths" on building a natural gas pipeline, Alaska Gov. Sean Parnell, a Republican, said in a recent interview. "We're closer now to getting a pipeline than we were before passage of that bill."
On May 21, Parnell signed the bill into law.
Now AGDC plans to seek face time with BP Alaska, ConocoPhillips Alaska, Exxon Mobil Corp. and TransCanada Corp. on their pipeline plans.
AGDC intends to "hold confidential discussions with the producers on their project," explained Frank Richards, manager of pipeline engineering and government affairs at AGDC. "They can learn about our project, and we can see where there are synergies for advancing the projects together or ultimately as one project."
Richards added, "We have been given the charge by the governor to work with, cooperate with TransCanada on the producers' project to advance and ultimately commercialize North Slope natural gas."
The industry coalition has proposed a 42-inch pipeline with the capacity to ship 3.5 billion cubic feet of natural gas each day from Prudhoe Bay to an LNG plant and export terminal in Southcentral Alaska. The pipeline would include five off-take points that would give Alaska residents and businesses access to lower-cost natural gas.
So far, however, the industry companies have not committed to building the LNG export project, which their studies show has an estimated price tag of $45 billion to $65 billion (EnergyWire, Oct. 5, 2012).
Entertaining alternatives
Faced with lingering questions about whether the energy giants will ever begin construction, the Alaska Legislature also directed AGDC to move forward with Plan B.
Under this alternative, the state corporation would build a smaller-volume pipeline focused on carrying North Slope natural gas to state residents and businesses.
AGDC has already drawn up plans and begun engineering studies on the proposed project -- a 36-inch pipeline that would cost $7.7 billion and carry up to 500 million cubic feet of natural gas to south-central Alaska.
Although AGDC is working on both projects, only one pipeline is likely to be built in Alaska.
"We're not going to build two," said Larry Persily, federal coordinator for Alaska Natural Gas Transportation Projects. "We'll be lucky if we build one."
Alaska officials say the state pipeline debate needs to be settled quickly to bring less expensive energy to central Alaska residents who struggle with winter's record-cold temperatures and soaring fuel oil prices.
This winter, Fairbanks residents turned to wood-burning stoves to heat their homes, causing severe winter air pollution problems in the region. Meanwhile, natural gas developers in the Cook Inlet, which provide fuel to Anchorage, warned that their supplies are dwindling.
Alaska lawmakers say lower-priced gas is needed to attract new businesses to the state. "We need sufficient gas to develop other natural resources, specifically mining prospects that are energy intensive," said state Rep. Mike Hawker, R-Anchorage, co-sponsor of the bill expanding AGDC's mandate.
"We need that gas now," Hawker said. "We have some major mining developers here in southern Alaska that are putting their business plans together based on importing LNG. If we could provide gas right now, they'd use our gas."
State officials also want to secure long-term natural gas contracts with Asian countries before the market is flooded with gas from competitors in the Lower 48 and other nations.
On May 17, the Obama administration upped the ante on the natural gas export race.
The Energy Department conditionally authorized Freeport LNG Expansion LP and FLNG Liquefaction LLC to export liquefied natural gas from Quintana Island, Texas, to countries that don't have free-trade agreements with the United States (E&ENews PM, May 17).
Last year, DOE also granted limited export permission for the Sabine Pass LNG Terminal export project in Cameron Parish, La.
"There's a large outside market in Asia," Hawker said. "Over the years, we've all seen these market windows open and close. But right now there is an absolute market window for the quality and reliability of Alaska natural gas."
Natural gas development would also give Alaska's budget a substantial boost. The state would receive natural gas royalty money and production taxes. That new money would lessen the government's reliance on the North Slope's declining oil output, which now provides more than 90 percent of Alaska's general fund revenues.
Exploration on hold with pipeline
Alaskans have been waiting for a natural gas pipeline to be built since the 1950s, when the Navy discovered a small field of gas in the Gubik fields, 300 miles north of Fairbanks.
In the 1970s, workers on the state's 800-mile oil pipeline, the Trans-Alaska Pipeline System, were told their next jobs would be building a separate natural gas pipeline.
Over the decades, Alaska governors have tried wooing, cajoling, bribing and threatening the companies to persuade them to build a pipeline, all without success.
As a consequence, energy companies on the North Slope don't explore for natural gas because they have no way to move it to market. The dry natural gas that drillers regularly encounter in the Arctic oil fields is reinjected into their wells to boost oil production.
In 2007, the state tried again to kick-start a gas pipeline.
Then-Gov. Sarah Palin (R) pushed the Alaska Gasline Inducement Act (AGIA) through the Legislature to expedite pipeline construction. A year later, the state signed an agreement with TransCanada to build a natural gas pipeline from the North Slope to Fairbanks. From there, the route would have tracked southeast through Canada to America's Midwestern consumers.
TransCanada agreed to submit an application to build and operate its pipeline to the Federal Energy Regulatory Commission by October 2012.
In return, the state provided $500 million in seed money and promised not to support any other large natural gas pipeline. The contract imposes a hefty, triple-damage fine on the state if it helps fund a pipeline capable of carrying more than 500 million cubic feet of natural gas per day.
In the ensuing years, however, shale gas development exploded in the Lower 48 states, and TransCanada shifted gears. Now TransCanada and its three energy industry partners are focused on building a gas pipeline from the North Slope to south-central Alaska.
Last year, the industry consortium renegotiated its contract with Alaska. Under the new agreement, the group has until October 2014 to submit its final application to FERC.
Early this year, the companies sent a letter to Parnell assuring him that they are "working toward the next decision points" on whether to build the expensive pipeline (EnergyWire, Feb. 19).
But some state officials are not impressed with the industry's progress. "All they've said to date is that they've agreed to agree to keep working forward," Hawker said. "They have not identified routes. They have not identified open season dates. They have not identified anything tangible related to their project."
A pipeline in our lifetimes?
Over the decades, industry's repeated delays have triggered calls for the state to build its own project to deliver Alaska's natural gas directly to local consumers.
"Some legislators feel that Alaska is never going to see a big pipeline put together by the producers -- or at least not in their lifetimes or their kids' lifetimes," Persily explained.
Initially, the all-Alaska pipeline campaign was portrayed as an insurance policy. In recent years, legislators have been taking the idea more seriously, passing legislation to move forward with a smaller, in-state pipeline.
"Many Alaskans are starting to lose faith in a producer-led pipeline," Persily said. "They're starting to see Plan B not as a backup plan but rather the more likely of the two to be built."
In 2010, Hawker and Alaska House Speaker Mike Chenault (R) championed legislation creating a new agency -- the AGDC -- to develop a proposal for an in-state natural gas pipeline. The agency was initially set up under the corporate umbrella of the Alaska Housing Finance Corp.
Since then, AGDC has completed environmental studies and developed a master plan for a 737-mile pipeline from the North Slope to the Anchorage area. However, AGDC is constrained by the terms of Alaska's 2008 agreement with TransCanada. The all-Alaska pipeline can carry no more than 500 MMcf of natural gas per day.
This year the Legislature went even further in forcing the issue. State lawmakers in April gave AGDC unlimited bonding authority to build a pipeline. They exempted the agency from public records laws, state hiring laws, tariff regulations and judicial review.
Equally important, the legislature greatly expanded AGDC's ability to conduct confidential negotiations with Alaska businesses interested in buying into a smaller, in-state pipeline. And it opened the door to direct discussions with the industry consortium on the large export pipeline.
"The Legislature gave us that authority to essentially go from full state ownership to participatory ownership of the pipeline. Or we could allow it to be sold off to another entity in total," Richards said. "We don't know ultimately what the ownership model is going to be for this pipeline."
He added, "Our charge is to deliver the gas to Alaskans at the lowest possible cost. We'll be looking for a model that will meet that tenet."
Export questions
What role AGDC will play in the future is open to speculation.
The agency expects to hold an open season on its small-volume pipeline in late 2014. If that offering attracts enough natural gas buyers, AGDC could begin construction by 2016. Full operations could be underway by 2020.
Under the terms of the legislation, the in-state pipeline would have to be paid for through natural gas sales.
Supporters of the project insist it would stand on its own without state subsidies. Richards argues that natural gas from an in-state pipeline would cost less than imported natural gas.
That's particularly important in Anchorage and the other high-population areas in southeastern Alaska, which now rely on Cook Inlet's dwindling natural gas supplies for heating and electrical generation.
"The local utilities have said they would have to provide for an alternate source of natural gas by 2015," Richards said. "Right now the spot prices for imports are around $15 per million [British thermal units]. We're saying that we can deliver natural gas to the consumers in the Anchorage and Cook Inlet area for between $9 and $11 per million BTUs."
But Persily argues that Alaska does not have sufficient demand to build a 500 MMcf natural gas pipeline without "substantial state subsidies."
"There's no way Alaska shippers are going to fill a 500-million-cubic-feet-a-day pipeline," he said. "That's more than twice what Alaska consumes now."
The great unknown is whether any of the companies signing up to buy Alaska's natural gas would be interested in exporting it overseas. Energy analysts suggest that Alaska's leftover capacity would be too small to attract an LNG export company.
On the other hand, if TransCanada's industry consortium goes forward with its proposed large-volume natural gas pipeline, the newly empowered AGDC would be in a position to help bring natural gas to state consumers.
At the very least, AGDC could build feeder lines from the large industry pipeline to local communities.
But many state officials want a bigger piece of the action. They're calling for the state to become a partner with the industry coalition, which would give Alaskans a stake in the pipeline's profits.
If the industry-backed pipeline project does not go forward, however, everything is up for grabs.
Many in Alaska say the state should built its own large-volume export pipeline, with AGDC taking the lead.
But if TransCanada and the industry consortium don't voluntarily bow out of the 2008 agreement with the state, Alaska could be the target of lawsuits if AGDC tried to build a pipeline carrying more than 500 MMcf of natural gas.
Pipeline and 'populist politics'
The long-running natural gas pipeline debate is likely to be a potent issue in the 2014 gubernatorial race.
"There's a lot of populist politics in Alaska behind the notion of saying, 'To hell with the big oil companies, we're just going to build a pipeline ourselves and take care of ourselves,'" Persily noted.
Parnell favors moving forward with both projects. He backed this year's legislation to bolster AGDC's authority. In his January State of the State message, Parnell also urged BP, ConocoPhillips, Exxon Mobil and TransCanada to meet a series of deadlines for building the project.
But Anchorage oil and gas lawyer Bill Walker, who is vying for the Republican nomination for governor, charges that Parnell is playing into the industry's hands by delaying work on a state project to bring natural gas to Alaska residents and to export it abroad.
Walker argues that Alaska should move quickly to build its own large-capacity pipeline.
"I'm saying, wait a minute. We're tired of waiting," he said in a recent interview. "The market is knocking on the door. It would be much cheaper for the state of Alaska if we build our own project" (EnergyWire, May 3).
Meanwhile, all eyes are on TransCanada and its energy industry partners for any hint on whether the group will move forward with its pipeline plans.
The oil and gas companies did not actively support this year's legislation to strengthen AGDC, but neither did they lobby against the proposal.
Hawker said that since the bill passed, "I've heard a lot of congratulations and assurances that the producers' legions of attorneys and smart people are poring through it and finding what they call 'all kinds of good stuff' in it."
Persily is skeptical that Alaska could build a large-volume pipeline on its own. He argues that, as in years gone by, the future of Alaska's natural gas pipeline project continues to rest in the energy industry's hands.
"It's pretty simple," Persily said. "If the producers build a big pipeline, we'll get a big pipeline."
Margaret Kriz Hobson is a reporter for EnergyWire, which first published the preceding report. It is republished here with permission.